Unilateral Termination Of Agreement To Sell Invalid If Contract Doesn't Allow It : Supreme Court

The Supreme Court on Monday (November 10) delivered a significant ruling interpreting the Specific Relief Act, 1963, holding that a party cannot unilaterally terminate a non-determinable agreement to sell, except where the contract itself is expressly determinable in nature under Section 14 of the Act. The Court further clarified that such invalid termination does not oblige the aggrieved party to first seek a separate declaration challenging the termination before pursuing a claim for specific performance.“Unilateral termination of the agreement to sell by one party is impermissible in law, except in cases where the agreement itself is determinable in nature...If such unilateral termination of a non-determinable agreement to sell is permitted as a defence, then virtually every suit for specific performance can be frustrated by the defendant by placing an unfair burden on the plaintiff... who, despite performing his part of the obligations and having showcased readiness and willingness, would require to also seek a separate declaration that the termination was bad in law.", the court said. A bench of Justices JB Pardiwala and R Mahadevan heard the case, which relates to an Agreement to Sell dated April 28, 2000, for 354 acres of agricultural land in Basavanakoppa village, Karnataka. The landowners had agreed to sell the property to a consortium led by the Patadia family and Muttanna for ₹26.95 lakh, receiving an advance of ₹9.45 lakh. However, after delays caused by litigation over land tenure and tenant relocation, the original landowners unilaterally terminated the agreement in 2003 and later sold the same land to third parties in 2007, even though an injunction against alienation was in force. The Patadia family sued for specific performance, asserting readiness and willingness to perform their part of the contract The High Court decreed that the plaintiffs were entitled to specific performance, directing the subsequent purchasers to execute the sale deeds and deliver possession, with the plaintiffs required to pay the balance consideration. While affirming the High Court's decree, the judgment authored by Justice Pardiwala clarified the broader principle that specific performance cannot be defeated by unilateral termination unless the contract itself allows such action. “If a contract itself gives no right to unilaterally terminate the contract or such right has been waived and a party still terminates the contract unilaterally, then that termination would amount to a breach by repudiation and the non-terminating party can directly seek specific performance without first seeking a declaration.”, the court observed. “In such cases, the burden cannot be casted upon the plaintiff to challenge the alleged termination... Where a party claims to have valid reasons to terminate... it should be such terminating party, if at all, who ideally should approach the court.”, the court added. The principles in the judgment were summarised as follows :(i). Unilateral termination of the agreement to sell by one party is impermissible in law except in cases where the agreement itself is determinable in nature in terms of Section 14 of the Act of 1963; (ii) If such unilateral termination of a non-determinable agreement to sell is permitted as a defence, then virtually every suit for specific performance can be frustrated by the defendant by placing an unfair burden on the plaintiff, who despite performing his part of the obligations and having showcased readiness and willingness, would require to also seek a separate declaration that the termination was bad in law. In such cases, the burden cannot be casted upon the plaintiff to challenge the alleged termination of agreement; (iii). Where a party claims to have valid reasons to terminate or rescind a non-determinable agreement to sell, with a view to err on the side of caution, it should be such terminating party, if at all, who ideally should approach the court and obtain a declaration as to the validity of such termination or rescission, and not the non-terminating party. However, this must not mean that the defendant (the terminating party) in such cases would mandatorily be required to seek a declaration because Sections 27 and 31 of the Act of 1963 respectively, while using the phrase “may sue” merely give an option to any person to have the contract rescinded or adjudged as void or voidable; (iv). Once the alleged termination of a non-determinable agreement in question is found to be not for bona fide reasons and being done in a unilateral manner on part of the defendant, it cannot be said that any declaration challenging the alleged termination was required on part of plaintiff; (v). If a contract itself gives no right to unilaterally terminate the contract, or such right has been waived, and a party still terminates the contract unilaterally then that termination would amount to a breach by repudiation, and the non- terminating party can directly seek...

Unilateral Termination Of Agreement To Sell Invalid If Contract Doesn't Allow It : Supreme Court

Yash Mittal

If the sale agreement was terminated illegally, then the other party can seek specific performance without seeking a declaration that termination was illegal.

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